Karnataka High Court
The Regional Provident Fund ... vs M/S. Bombay Rayon Fashions Limited on 13 September, 2022
Author: G. Narendar
Bench: G. Narendar
1
®
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 13TH DAY OF SEPTEMBER, 2022
PRESENT
THE HON'BLE MR. JUSTICE G. NARENDAR
AND
THE HON'BLE MR. JUSTICE C.M. JOSHI
WRIT PETITION NO.5132 OF 2021 (L-PF)
BETWEEN:
THE REGIONAL PROVIDENT FUND,
COMMISSIONER-I, EMPLOYEES PROVIDENT
FUND ORGANIZATION, REGIONAL OFFICE,
#570, RAJA RAJESHWARI REGENCY,
26TH CROSS, IDEAL HOME CO-OP.
SOCIETY, RAJA RAJESHWARI NAGAR,
BENGALURU-560 098.
... PETITIONER
(BY SMT. NANDITA D HALDIPUR, ADVOCATE)
AND:
M/S. BOMBAY RAYON FASHIONS LIMITED,
(UNIT-19), #320/8, MYSORE ROAD,
OPP: B.H.E.L, BENGALURU-560 026
BY MANAGING DIRECTOR.
... RESPONDENT
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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO CALL FOR THE
RECORDS IN EPF/ITB/156/2017 FROM THE CENTRAL GOVERNMENT
INDUSTRIAL TRIBUNAL CUM LABOUR COURT AND ETC.
THIS WRIT PETITION COMING ON FOR PRELIMINARY
HEARING, THIS DAY, G. NARENDAR J., MADE THE FOLLOWING:
ORDER
Heard the learned counsel for the petitioner.
2. Petitioner is before this Court being aggrieved by the order of the Central Government Industrial Tribunal - cum - Labour Court, Bengaluru, whereby the Tribunal by its order dated 27.02.2020 rendered in EPF No.156/2017 has been pleased to modify the order of the Regional Provident Fund Commissioner-II, Bengaluru by reducing the quantum of damages from `3,66,156/- to `2,92,900/- i.e., by reducing the amount of damages by about 20% of the sum levied as damages. The facts are not in dispute. The writ petition is directed against the order modifying and reducing the quantum of damages levied by the statutory authority. 3
3. In support of her contention, the learned counsel for the petitioner has placed reliance on the ruling rendered by the Hon'ble Apex Court in Civil Appeal No.2136/2012 dated 23.02.2022 wherein, the Hon'ble Apex Court while examining the issue as to whether mens rea or actus reus is a sine qua non for fastening the liability on the employer under Section 14B of the Employees Provident Fund & Miscellaneous Provisions Act, 1952 (hereinafter referred to as 'Act, 1952' for short) and after examining a series of it's own rulings has been pleased to hold in para 17 as under:-
"17. Taking note of three-Judge Bench judgment of this Court in Union of India and Others v. Dharmendra Textile Processors and others (supra), which is indeed binding on us, we are of the considered view that any default or delay in the payment of EPF contribution by the employer under the Act is a sine qua non for imposition of levy of damages under Section 14B of the Act 1952 and mens rea or actus reus is not an essential 4 element for imposing penalty/damages for breach of civil obligations/liabilities."
4. Learned counsel for the petitioner placing strong reliance on the aforesaid observation in para 17, contends that the Tribunal erred in placing reliance on the element of mens rea for reducing the damages imposed and hence, would pray that the order of the Tribunal be set aside and order of the statutory authority be restored.
5. The Tribunal while disposing of the matter has placed reliance to the rulings of the Hon'ble Apex Court rendered in the case of Mcleod Russel India Limited vs. Regional Provident Fund Commissioner, Jalpaiguri and others reported in (2014) 15 SCC 263, M/s Prestolite of India Ltd. vs. The Regional Director and another reported in AIR 1994 SC 521 and Organo Chemicals Industries and another vs. Union of India and others reported in (1979) 4 SCC 573 and placing reliance on the observations in the 5 above rulings has proceeded to observe and hold in para 5 to 7 as under:-
"5. Section 14B of the Act 1952 which is pari materia to Section 85B of the Act, 1948 is reproduced hereunder:
"14B. Power to recover damages.-Where an employer makes default in the payment of any contribution to the Fund, the Pension Fund or the Insurance Fund or in the transfer of accumulations required to be transferred by him under sub-section (2) of section 15 or sub- section (5) of section 17 or in the payment of any charges payable under any other provision of this Act or of any Scheme or Insurance Scheme or under any of the conditions specified under section 17, the Central Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gazette, in this behalf may recover from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the Scheme:6
Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard:
Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), subject to such terms and conditions as may be specified in the Scheme."
6. So far as the constitutional validity of Section 14B of the Act 1952 is concerned, the same has been upheld by the judgment of this Court in Organo Chemical Industries and another v.Union of India and others.
7. Learned counsel for the appellant(s) submits that the justification tendered by the appellant (s) for which the contribution of 7 EPF could not have been deposited has not been looked into by the authority and the element of mens rea or actus reus is one of the essential elements which has not been taken note of by the authority while imposing damages under Section 14B of the Act 1952. In support of his submissions, counsel for the appellant (s) has placed reliance on the judgments of this Court in Employees State Insurance Corporation v.
HMT Ltd. and another2, Mcleod Russell
India Ltd. v. Regional Provident Fund
Commissioner, Jalpaiguri and others and
Assistant Provident Fund Commissioner,
EPFO and another v. The Management of
RSL Textiles India Private Limited through its Director."
6. On reading of the aforesaid rulings, it is apparent that rulings relied upon by the petitioner deemed different aspect of Section 14B of the Act, 1952 i.e., with regard to applicability of the provisions and in that regard, the Hon'ble Apex Court in the latest ruling i.e., in Civil Appeal No.2136/2012 has been pleased to reiterate the law that the 8 sine qua non for incurring liability by the employer under Section 14B of the Act, 1952 is the sole fact of non payment of the contribution and either mens rea or actus reus or sine qua non for incurring the liability under Section 14B of the Act, 1952. The rulings relied upon by the Tribunal deal with an all together different aspect of Section 14B of the Act, 1952. The provisions of Section 14B of the Act, 1952 reads as under:-
"14B. Power to recover damages.-Where an employer makes default in the payment of any contribution to the Fund, the Pension Fund or the Insurance Fund or in the transfer of accumulations required to be transferred by him under sub-section (2) of section 15 or sub- section (5) of section 17 or in the payment of any charges payable under any other provision of this Act or of any Scheme or Insurance Scheme or under any of the conditions specified under section 17, the Central Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gazette, in this behalf may recover from the employer by way of penalty 9 such damages, not exceeding the amount of arrears, as may be specified in the Scheme:
Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard:
Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), subject to such terms and conditions as may be specified in the Scheme."
7. The Hon'ble Apex Court after appreciating the provisions in the ruling reported in AIR 1994 SC 521 in the case of M/s. Prestolite of India Ltd v. The Regional Director and another has been pleased to observe and hold in para 3 and 4 as under:-
10
"3. Mr. Goswami, learned counsel for the respondents has, however, submitted that it would have been appropriate if the Regional Director had given reasons in some details for disposing of the show cause proceeding. But in the facts and circumstances of the case, the adjudication made by the Director was quite just and fair and on the face of the representation no other order was warranted. Since no injustice has been made to the appellant, for the mere technicality that the adjudicating authority has not indicated detailed reasons for its finding the impugned orders should not be set aside. He has also contended that specific case of prejudice suffered on account of impugned adjudication had not been raised in the application under Section 75 of the Act and it also does not appear that before the High Court such contentions were specifically raised. Hence, the appellant should not be permitted to raise such contentions at the time of hearing of this appeal. Mr. Goswami has submitted that the grounds taken in the written representation were vague and the appellant was given the opportunity of personal hearing but such opportunity was not availed of 11 and no material was produced before the adjudicating authority to substantiate the grounds made in the representation for delayed payment. Accordingly, the Regional Director had rightly rejected the representation by holding that the reasons advanced were not legally tenable. Mr. Goswami has also submitted that under the Employees' State Insurance General Regulations guidelines have been indicated as to how damages for delayed payment are to be imposed. Since such guidelines have been followed no exception should be made to the impugned adjudication.
4. It however appears to us that the contention of Mr. Goswami in the facts of the case, should not be accepted. Even if the regulations have prescribed general guidelines and the upper limits at which the imposition of damages can be made, it cannot be contended that in no case, the mitigating circumstances can be taken into consideration by the adjudicating authority in finally deciding the matter and it is bound to act mechanically in applying the upper most limit of the table. In the instant case, it appears to us that 12 the order has been passed without indicating any reason whatsoever as to why grounds for delayed payment was not to be accepted. There is no indication as to why the imposition of damages at the rate specified in the order was required to be made. Simply because the appellant did not appear in person and produce materials to support the objections, the employee's case could not be discarded in limine. On the contrary, the objection ought to have been considered on merits. We therefore, allow this appeal and set aside the impugned orders. The Regional Director is directed to dispose of the representation of the appellant by indicating reasons after taking into consideration the grounds for delayed payment. Since the matter is going to be reheard, the appellant is permitted to make personal representation at the hearing of the show cause proceeding. As the matter is pending for a long time, the representation should be considered and disposed of within three months from the date of the receipt of the order by giving notice of the date of hearing in advance to the appellant. In the facts and circumstances of the case, there shall be no order as to costs. By way of 13 abundant caution it is made clear that we have not considered the case of the appellant on merits."
8. The next ruling is reported in (1979) 4 SCC 573 in the case of Organo Chemical Industries and another vs. Union of India and others has been pleased to observe and hold in para 13 to 16 as under:-
"13. The contention that Section 14-B confers unguided and uncontrolled discretion upon the Regional Provident Fund Commissioner to impose such damages 'as he may think fit' is, therefore, violative of Article 14 of the Constitution, cannot be accepted. Nor can it be accepted that there are no guidelines provided for fixing the quantum of damages. The power of the Regional Provident Fund Commissioner to impose damages under Section 14-B is a quasi-judicial function. It must be exercised after notice to the defaulter and after giving him a reasonable opportunity of being heard. The discretion to award damages could be exercised within the limits fixed by the Statute. Having regard to the punitive nature of the power exercisable under Section 14-B and the 14 consequences that ensue therefrom, an order under Section 14-B must be a 'speaking order' containing the reasons in support of it. The guide- lines are provided in the Act and its various provisions, particularly in the word 'damages' the liability for which under Section 14-B arises on the 'making of default'. While fixing the amount of damages, the Regional Provident Fund Commissioner usually takes into consideration, as he has done here, various factors viz. the number of defaults, the period of delay, the frequency of defaults and the amounts involved. The word 'damages' in Section 14-B lays down sufficient guidelines for him to levy damages.
14. Learned counsel for the petitioners, however, contends that in the instant case, the period of arrears varies from less than one month to more than 12 months and, therefore, the imposition of damages at the flat rate of hundred per cent for all the defaults irrespective of their duration, is not only capricious but arbitrary. The submission is that if the intention of the legislature was to make good the loss caused by default of an 15 employer, there could be no rational basis to quantify the damages at hundred per cent in case of default for a period less than one month and those for a period more than 12 months. It is urged that the fixation of upper limit at hundred per cent is no guideline. If the object of the Legislation is to be achieved, the guidelines must specify a uniform method to quantify damages after considering all essentials like loss or injury sustained, the circumstances under which the default occurred, negligence, if any, etc. It is said that the damages under Section 14-B which is the pecuniary reparation due, must be correlated to all these factors. In support of his contention, he drew our attention to Section 10F of the Coal Mines Provident Fund and Bonus Schemes Act, 1958, which uses the words 'damages not exceeding twenty-five per cent' like section 14B of the Act, and also to a tabular chart provided under that Act itself showing that the amount of damages was correlated to the period of arrears. We regret, we cannot appreciate this line of reasoning. Section 10F of the Act of 1958 came up for consideration before this Court in Commissioner of Coal Mines 16 Provident Fund, Dhanbad v. J. P. Lalla. This Court observed, firstly, that the determination of damages is not 'an inflexible application of a rigid formula'; and secondly, the words 'as it may think fit to impose' show that the authority is required to apply its mind to the facts and circumstances of the case. The contention that in the absence of any guidelines for the quantification of damages, Section 14-B is violative of Article 14 of the Constitution, must, therefore, fail.
15. In this connection, it was also urged that the absence of any provision for appeal, leaves the defaulting employer with no remedy. The conferral of arbitrary and uncontrolled powers on the Regional Provident Fund Commissioner to quantify damages, it is said, without a corresponding right of appeal or revision, makes the provision contained in Section 14-B per se void and illegal and it is liable to be struck down on that ground. We are afraid the contention is wholly devoid of substance. Mere absence of provision for an appeal does not imply that the Regional Provident Fund Commissioner is invested with arbitrary or 17 uncontrolled power, without any guidelines. The conferral of power to award damages under Section 14-B is to ensure the success of the measure. It is dependent on existence of certain facts; there has to be an objective determination, not subjective. The Regional Provident Fund Commissioner has not only to apply his mind to the requirements of Section 14-B but is cast with the duty of making a "speaking order", after conforming to the rules of natural justice.
16. This Court has repeatedly laid it down that where the discretion to apply the provisions of a particular statute is left with the Government or one of the highest officers, it will be presumed that the discretion vested in such high authority will not be abused. The Government or such authority is in a position to have all the relevant and necessary information in relation to each kind of establishment, the nature of defaults made by the employer, and the necessity to decide whether the damages to be imposed should be exemplary or not: Mohmedalli v. Union of India. It was stated in K. L. Gupta v. Bombay Municipal Corporation that 18 when power as to be exercised by one of the highest officers, the fact that no appeal has been provided for 'is a matter of no moment'. The same view was reiterated in Chinta Lingam v. Government of India. There is always a presumption that public officials would discharge their duties honestly and in accordance with the rules of law. This was emphasised in Pannalal Binjraj v. Union of India, stress being laid on the power being vested not in any minor official but in top-ranking authority. In the circumstances, the absence of a provision for appeal or revision can be of no consequence."
9. Lastly, in the third ruling relied on by the Tribunal reported in (2014) 15 SCC 263 in the case of Mcleod Russel India Limited vs. Regional Provident Fund Commissioner, Jalpaiguri and others has been pleased to observe and hold in para 11 and 12 as under:-
"11. In HMT Ltd., this Court noted the beneficial nature of the ESIC Act; that subordinate legislation must conform to the provisions of the parent Act. Despite giving due regard to the use of 19 the words "may recover damages by way of penalty", and mindful that mens rea and actus reus to contravene a statutory provision are necessary ingredients for levy of damages, this Court set aside the interference of the High Court vis-à-vis the imposition of damages and further held that imposition of damages by way of penalty was not mandated in each and every case. The dispute was remitted back to the High Court for fresh consideration i.e. to proceed on the premise that the levy of penalty under the Act was not a mere formality, a foregone conclusion or an inexorable imposition; and that the circumstances surrounding the failure to deposit the contribution of the employees concerned would also have to be cogitated upon. This decision does not prescribe that damages or penalties cannot or ought not to be imposed. Further, the presence or absence of mens rea and/or actus reus would be a determinative factor in imposing damages under Section 14B, as also the quantum thereof since it is not inflexible that 100 per cent of the arrears have to be imposed in all the cases. Alternatively stated, if damages have been imposed under Section 14B 20 it will be only logical that mens rea and/or actus reus was prevailing at the relevant time. We may also note that this Court had yet again reiterated the well known but oft ignored principle that High Courts or any Appellate Authority created by a statute should not substitute their perspective of discretion on that of the lower Adjudicatory Authority if the impugned Order does not otherwise manifest perversity in the process of decision taking. HMT Ltd. does not proscribe imposition of damages; that would negate the intent of the legislature. The submission of the petitioner before us is that the liability was of the erstwhile management and since the petitioner was not the "employer" at the relevant time, default much less deliberate and wilful default on the part of the petitioner was absent. However, it seems to us that once these damages have been levied, the quantification and imposition could be recovered from the party which has assumed the management of the establishment concerned.
12. The two-Judge Bench decision in Organo Chemical Industries vs Union of India, makes 21 compelling reading not only because of the contrasting styles of two of our illustrious predecessors; A.P. Sen, J for his erudite, efficient and precise exposition of the law and V.R. Krishna Iyer, J. for his elegance of expression and verve impregnated with humanism and compassion. Organo involved a petition under Article 32 of the Constitution challenging the Constitutional vires of Section 14B of the EPF Act. The contention was that the default of the employer/establishment was not wilful, rendering inappropriate the imposition of damages of a penal nature; and since the computation of damages was left totally unguided and untrammelled, violation of Article 14 was plainly and expectedly obvious. The Court while upholding the Constitutional validity of Section 14B held that the raison d'etre for the introduction of Section 14B (by Act 40 of 1973) was to deter and thwart employers from defaulting in forwarding contributions to the Funds, most often with the ulterior motive of misutilizing not only their own but also the employees' contributions. Section 14B originally restricted damages to 25 per cent of the withheld amounts which, having been found to be 22 ineffectual for the attainment to the objectives of the Act, was increased to a sum "not exceeding the amount of arrears". This Court also interred the division or dichotomy of opinions flowing from differing decisions of different High Courts by clarifying that the word "damages" has been employed in this dispensation to mean penalty on recalcitrant employers as well as reparation for loss caused to the Fund. The Court stoutly repelled the contention that damages were merely compensatory in nature and, therefore, should not exceed the interest that would have accrued in favour of the Funds had the contributions been diligently dispatched to the Funds. Organo has been favourably followed in Babubhai & Co. vs. State of Gujarat.
10. From a plain reading of the above rulings cited by the Tribunal, it is apparent that either mens rea or actus reus are not a sine qua non for incurring the liability under Section 14B of the Act, 1952 but the elements of mens rea and actus reus do have a mitigating role to play in the matter of fixation of the quantum of liabilities and as held by Hon'ble Apex 23 Court, it need not necessarily be 100% of the sum due as arrears. Thus, it can be safely concluded that the authorities are clothed with the discretionary power in the matter of deciding the quantum to be imposed as damages under the provisions of Section 14B of the Act, 1952.
11. In view of the above discussion, we do not find any error in the order of the Tribunal. Accordingly, the writ petition stands rejected.
No order as to costs.
Sd/-
JUDGE Sd/-
JUDGE MH/-